As a small business owner, the day may come when you need financing to keep your business stable and healthy. Although banks may be your first stop for a small business loan, your business may not be bankable enough to get approved. Fortunately, there are many alternative lenders are easier to qualify for.

*Does not represent the typical rate for every borrower, and other fees may apply.

How alternative business loans are different

Banks vs. Alternative Lenders

Many business owners think that a bank or credit union is the only place they can get a business loan. But that’s far from the truth. When it comes to a bank loan or an alternative loan, there are quite a few differences—some of which we’ve covered below.

Speed

The main benefits of going with alternative/online lenders is that they offer faster funding. Banks are painfully slow at reviewing loan applications and sending funds.

Costs

Because of their lightning-fast approval process, flexibility, and convenience, alternative loans have higher interest rates than banks.

Flexibility

Because alternative lenders have high interest rates, they tend to be more flexible when considering credit history and setting monthly payment amounts. This means that small business owners have a much higher chance of getting a loan. Online lenders are also more flexible about when you can communicate with them, whereas traditional banks usually require you to visit their office in person during regular business hours.

Now that we’ve explored how alternative lenders stack up against big banks, let’s put this knowledge to practice and take a look at some of the best alternative loans for small businesses.

Lendio: Best overall

Lendio earns the top spot on our list of alternative business loans—and for good reason. Unlike typical lenders, Lendio is a marketplace that helps business owners find a slew of loans through a variety of lenders—some of which are on this list.

Although a weak credit score will disqualify you from consideration by both traditional and alternative lenders, it doesn’t with Lendio. Lendio considers everyone with a personal credit score of 550 or higher. But take note: with a low credit score, you may need to secure your loans with physical collateral.

Determine if Lendio is right for your business with these considerations:

Strengths

Fast funding and approval

Multiple, targeted loan options

Minimum credit score requirement of only 550

Weaknesses

Lacks options for businesses under six months old

Note

Thanks to its large network of lenders, Lendio can help you find loans tailored to your business needs and budget.

Kabbage: Best for convenience

Kabbage is the most convenient solution of the five alternative business loan provider we reviewed. Its quick loan application process can be completed in minutes, and once you’re approved, you’ll have access to funds immediately—a major eye-catching benefit for almost every small business owner.

Plus, borrowers can access funds on the fly thanks to the Kabbage Card, a purchasing card tied to your Kabbage account. If your wallet has enough debit and credit cards, opt for accessing funds through their phone app or website. Although Kabbage is lenient on eligibility criteria, you must show one year of being in business.

Determine if Kabbage is right for your business with these considerations:

Strengths

Speedy loan approval

Flexible lines of credit

Easy and immediate access to funds

Weaknesses

High interest rates

No prepayment options

Grow your business todayBrowse hundreds of loan options, custom-tailored to your business and budget needs, from a single, simple platform.

OnDeck: Best for established businesses

OnDeck is an alternative lender that’s ideal for small businesses in need of both lines of credit and term loans. If you have an unexpected expense or a one-off cost, you can dip into a line of credit and make fixed weekly payments. Or if you have a specific project or purchasing goal in mind, you can find a term loan that lasts from 3 to 36 months.

OnDeck provides flexibility for business owners looking for longer-term loans. In contrast, most of the lenders on our list offer loans of only up to 12 months. OnDeck’s lowest annual interest rate listed is a competitive 9.99%. Keep in mind, however, that costs will fluctuate depending on your company’s cash flow and credit score.

To get approved for a loan with OnDeck, borrowers must be in business for at least 12 months, have $100,000 in annual revenue, and have a credit score of 500 or higher. This is one of the lowest minimum credit scores we found among the alternative lenders we researched. Plus, OnDeck offers significant discounts for repeat customers.

The biggest drawback of OnDeck is that it only offers secured loans, meaning you must have assets for loan collateral, which may be a major turn off for small business owners.

Strengths

Fast funding

Loyalty benefits

Solid customer service

Weaknesses

High interest rates

Frequent payments

Funding Circle: Best for customer service

With reliable customer service and low interest rates, Funding Circle is a stellar alternative option for small business owners. As we browsed the reviews of the peer-to-peer lending company, we saw several stamps of approval thanks to their helpful support team.

Since Funding Circle offers installment loans, you can save money on interest by paying off your loan early. Here’s even better news: They boast a competitive 4.99% interest rate.

Funding Circle has a few let-downs. Due to its rigorous requirements, startups with little cash flow find it difficult to get approved: Only consider Funding Circle if you’re shopping for a loan of at least $25,000 and have a good personal credit score. Need further help to get started? Funding Circle offers a to help you understand your loan and repayment terms.

Determine if Funding Circle is right for your business with these considerations:

Strengths

Solid customer service

Lenient annual revenue requirements

Reliable customer service

Weaknesses

No options for startups

No loans for less than $25,000

Minimum credit score requirement of 620

Accion: Best for startup businesses

As a nonprofit grassroots lender that began in 1961, Accion has a mission to help local communities by financing startups who have been denied loans from banks and credit unions. Their lenient restrictions offer a lot of flexibility in terms of minimum or maximum loan amounts: $300 to $1,000,000.

Accion also aims to aid struggling business owners with a variety of backgrounds, including veteran-owned, minority-owned, and women-owned businesses. Plus, Accion offers specialized local loans in each state. Because of their more personal approach, Accion’s approval process tends to be longer than most alternative lenders. In fact, the speed of their approval process is more on par with big banks.

Fun Fact

Before offering loans to the US in 1991, Accion specialized in microloans and financial education to low income communities across the world.

To see the eligibility criteria in your state, enter your business zip code in its system.

Determine if Accion is right for your business with these considerations:

Strengths

Multiple loan options for different business types

Lenient eligibility requirements

Personalized approach

Weaknesses

Slow approval and funding process

Surprising fees

Examples of alternative business loan types

There are a variety of alternatives to the old-fashioned bank term loan or credit card:

Trade credit

For many small businesses, trade credit is important for financing and cash flow growth. Trade credit is an agreement between partners doing business with each . Put simply, the seller extends a credit to the buyer, allowing the buyer to pay for the goods or service at a later date. This credit is essentially a source of working capital.

For small businesses and startups, a trade credit may be the only financing option available. If you opt for this type of financing, remember to pick your suppliers carefully.

Equipment financing is one of the easiest ways to obtain a small business alternative loan. Equipment financing allows you to buy or lease equipment.

Whether your business needs new desks, computers, or even a company car, any business item that is considered equipment can be financed. Rather than putting a personal guarantee on the line, such as cash or tangible collateral, the equipment itself will collateralize the loan. Just be sure to take care of the leased equipment. Also, don’t use the loan on equipment that will soon become outdated. Otherwise, you might find yourself making payments on obsolete equipment.

Invoice factoring and financing

While it’s easy to confuse invoice factoring and invoice financing because they both close cash flow gaps, they’re not completely identical.

Invoice financing

Invoice financing allows business owners to borrow funds against unpaid invoices. Once the money is collected from the client, the borrower must pay the lender back the amount loaned along with fees.

Invoice factoring

Invoice factoring, on the other hand, consists of selling the invoice to the lender for a percentage of the total. The lender will then be responsible for collecting the full loan amount from the client.

Quick Tip

If you’re on the market for invoice financing, we recommend exploring FundBox. Not only do they offer invoice factoring, but they also provide fast, short-term invoice financing for businesses who’ve been denied by traditional loans.

Cash flow loans

Cash flow loans provide short-term cash flow. These loans are backed by the borrower’s personal or business cash flow, so they’re an ideal option for a company with strong cash flow but few material assets.

Although a cash flow loan can provide massive funding, it’s a risky way to finance future revenue. And be leery of the high costs. If you’re considering a cash flow loan, we recommend exploring the best cash flow loans for small businesses.

Quick Tip

If your business makes a considerable amount of credit card sales, we recommend a merchant cash advance through QuarterSpot. This shortcut to funding allows lenders to withhold a portion of your daily credit and debit card sales for repayment.

Get the Funding Best for You

Bottom line

If you’re sick of being turned down by banks and credit unions, it may be time to consider alternative financing options to build your business. Every alternative lender has unique requirements to determine eligibility. Fortunately, you don’t need a perfect credit score to qualify for an alternative business loan.

We encourage you to consider a business loan through one of our recommendations listed above. If you’ve found success with a different alternative lender, leave a comment below! We’d love to hear about your experience.

Disclaimer: The information featured in this article is based on our best estimates of pricing, package details,
contract stipulations, and service available at the time of writing. All information is subject to change. Pricing
will vary based on various factors, including, but not limited to, the customer’s location, package chosen, added
features and equipment, the purchaser’s credit score, etc. For the most accurate information, please ask your customer
service representative. Clarify all fees and contract details before signing a contract or finalizing your purchase.

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